The Sahm rule, which is used to indicate the onset of a recession, has officially been triggered.
The rule reached 0.5%, meaning the three-month moving average of the unemployment rate is now 0.5% above the lowest point in the past year.
Bank of America has provided historical context on previous instances when this rule was activated.
It’s important to note that this time, the unemployment rate is rising from a historically low level. As of the July report, the unemployment rate has only just exceeded the Federal Reserve’s long-term estimate of 4.2%.
Claudia Sahm, who created the rule, had suggested that the Fed should have cut rates on Wednesday. She told the Wall Street Journal that while she doesn’t believe the economy is on the verge of a recession, the situation is deteriorating.
